S&P REDUCES OPINION ON EXXON MOBIL SHARES TO BUY FROM STRONG BUY, ON VALUATION (XOM; 89.61):
XOM posts first quarter EPS of $2.03, vs. $1.62, missing our estimate by $0.08 on lower-than-expected downstream results. Oil and gas production declined 5.4%, below our forcast of a 3.7% decline, and we expect 2008 volumes to fall slightly, with project start-ups slated for the second half. We see 2% annual growth during 2007-2012. We are trimming our 2008 EPS projection by $0.21 to $8.34, and 2009s by $0.77 to $7.86. Blending our discounted cash flow (DCF), net asset value (NAV) and relative valuations, we are reducing our target price by 1 to 103, an expected enterprise value of 6.7 times our 2009 EBITDA estimate, a discount to U.S. peers. -T. Vital
S&P REITERATES BUY RECOMMENDATION ON SHARES OF HOME DEPOT (HD) 29.62):
HD plans in fiscal year 2009 (January) to close 15 underperforming stores. In addition, it will scale back future square footage growth to approximately 1.5% per year beginning in fiscal year 2010 (January), from 4.9% in fiscal year 2008 and about 2.5% expected this fiscal year. We applaud these moves, given an industry we believe is nearing saturation, with a scarcity of attractive new locations. Moreover, this change will reduce capital spending by approximately $1 billion over the next three years. We are modeling lower future sales growth and capex assumptions, but are keeping our 35 DCF-based target price. -M. Souers
S&P MAINTAINS STRONG BUY OPINION ON SHARES OF STARBUCKS (SBUX; 16.68):
March-quarter EPS of $0.15, vs. $0.19, is in line with our estimate, reduced after pre-announcement last week. The quarter includes about a $0.03 charge for its program to renew the brand and to close about 100 underperforming stores. SBUX will trim U.S. company cafe openings to about 250 each in fiscal year 2009 (September) to fiscal year 2011. We expect SBUX to increase share buybacks in light of anticipated $2 billion of free cash flow over next three years, inclusive of reduced capex expectations and costs of an aggressive new product development plan. We keep our fiscal year 2008 EPS estimate of $0.85 and our 27 target price. -M. Basham
S&P DOWNGRADES SHARES OF BARNES & NOBLE TO SELL FROM HOLD (BKS; 32.79):
BKS shares are up over 25% in the past two months, and are now trading above our $31 DCF-based target price. We think a challenging macro-environment, increased price competition, and the lack of a Harry Potter book to boost traffic and sales in fiscal year 2009 (January) will more than offset efforts to rein in SG&A costs. Longer-term, we think demographic trends are unfavorable, with declining adult readership levels and increased price competition from Internet-based retailers. Trading at nearly 18 times our fiscal year 2009 EPS estimate of $1.85, we think the shares are overvalued. -M. Souers
S&P REITERATES HOLD OPINION ON SHARES OF GENERAL MOTORS (GM; 23.38):
GM's April light vehicle volumes slumped 23% from a year ago. Cars fell 8% but light trucks stumbled 32%, though inventories improved. Future sales of better-selling vehicles such as the Enclave, may be hurt by production stoppages given a strike against a key supplier. With higher gas prices, lower home values, and a recessionary feel to the economy, in our view, we see consumers taking a cautious approach to large ticket discretionary purchases. We recently further cut our industrywide 2008 light vehicles sales forecast by 150,000 units to 15.15 million units. -E.Levy-CFA